Author: iptrialssc

Very interesting commentary by Stephen Chow above and these are, like most all IP theoretical discussions, thought provoking issues. Thanks also to Eric for keeping us all informed on the FTSA.

Some random thoughts below on the hypothetical TST (Trade-Secret-Trolls) and the FTSA itself from the peanut gallery:

This issue of latent-trade-secret trolls about to manifest upon enactment of the federal law seems as much about how Congress acts, vis-à-vis knee jerk reactions, and the desire of commentary providers to be relevant in a real world context than it does about any legitimate IP rights. A trade secret, unlike a patent, is always in a state of flux, even after it has been litigated and subject to, for example, a re-trial. I am not aware of Markman-like Trade Secret Construction Hearings, and further, how can a NPE have access to or rights to a trade secret if they are not utilizing it as part of a license, and why would they pay for a license if they were not going to monetize that by using it? I suppose that is the primrose path that the professors wish to lead everyone down, but by licensing a trade secret to a third-party with nefarious intentions, the holder of the trade secret is subjecting themselves to losing the trade secret if it is disclosed by the alleged troll. Why would any trade secret holder be willing to license a valuable trade secret for anything less than valuable consideration? Why would any trade secret holder allow any third-party access to its trade secrets without adequate assurances that the party taking same was solvent to respond to misuse of the trade secret? Better off to just sell the company / asset.

Put yet another way, case law requires an alleged trade secret owning plaintiff to affirm / declare under oath (via the client, not counsel, sorry folks) the existence of the trade secret. To do so, one seemingly must be knowledgeable in the art field and be able to testify to not only the technical aspects of the trade secret, but also why such processes, information, etc., have value.

Still further, certain claims are personal, meaning that only the person harmed has standing to bring the suit. Professional malpractice claims would be a primary example. Looking at this matter through that lens, why would a “trade secret” troll have standing to sue for misappropriation of something they were not themselves using? It is not common for a party to “assign” their trade secrets claims to a third-party. This is likely because of the trade secret claim ought not allow for a reasonable royalty as damages to anyone other than the original owner. To be clear, trade secret claims do allow for reasonable royalties, according to MoFo in this 2011 AIPLA paper. http://www.aipla.org/2011/spring/MATERIALS/Wilson_Paper.pdf

Back to the real issue that spawned Eric’s comments on the possibility of trade secret trolls, SHOULD WE SUPPORT A FEDERAL TRADE SECRET ACT (FTSA)? Fairly compelling reasons exist for that, however, the trade secret acts of most states are pretty “uniform,” unlike, for example, myriad state law with respect to enforcement of non-competes / restrictive covenants or the elements of common law civil conspiracy. Would those claims be next for federal action and “uniformity?” Would the federal trade secret act “pre-empt” these centuries old state law claims? If yes, then perhaps Stephen’s comments take on an even greater weight with states essentially giving up claims of their citizenry via pre-emption. To be clear, and thanks again to the hard-working folks at MoFo for this link, http://www.mofo.com/resources/publications/2007/09/uniform-trade-secrets-act-preemption-an-obscure-__ , but a litigant claiming misappropriation of trade secrets may very well unwittingly be forfeiting their rights to other age old claims like civil conspiracy that could provide for easier proof and even greater damages remedies if the case makes it to trial. It seems a very good argument exists for not allowing pre-emption of these alternative remedies via a FTSA. Actually pre-emption exists already in most states’ UTSA versions, so this may not be the best argument, but my imagination is not good enough to foresee all the ways in which a party might benefit or lose by not having access to multiple claims, and not being subject to a thieving defendant arguing that because you are alleging is really a trade secret claim, you cannot pursue those other claims.

So having read through Eric’s post above and his earlier three posts (May 8, May 21 and Aug. 25, 2014 – great blog btw at www.protectingtradesecrets.com ) on the FTSA, it seems the best argument of those wishing to convince us of the inevitable manifestation of trade secret trolls is that the seizure provisions of the FTSA will be abused. I am not convinced by this. Most any lawyer that would be in the position to utilize such laws values his or her reputation (and hide) enough not to ever get in the situation where they could be credibly considered to have abused TRO provisions of any law, FRCP 65, or otherwise. This is because they know the kicked sleeping tiger will awake and if the issue was worthy of the fight, it is worthy of a fight back and that a judge, federal or otherwise, is going to review the matter at the preliminary injunction stage (with both sides of the story) and decide if the lawyer for the TRO / ex parte seizure was on solid ground. He had better be on pretty solid ground, or else the bond may be lost, the client may be lost, and the fight may be lost!

It seems what we really are looking at with the FTSA is improving the process by which a litigant can more efficiently enforce their trade secrets, and who would not be in favor of that? However, uniform provisions on preserving evidence exist already and can be sought in any court. Also, most state courts have Business Courts or other special mechanisms to get attention to an issue if it really is this important and diversity jurisdiction, or federal question (e.g., regulated product), will likely get most of these disputes into federal court If that is where the plaintiff wants to be. Also, if a thief will steal, they will destroy evidence of their theft and so the “consequences” of destroying evidence are just that, they are not going to deter the destruction (let’s not kid ourselves). The “unintended consequences” of this FTSA legislation will likely outweigh its good intentions.

I do not really have a dog in this fight, but two well known phrases come to mind as I conclude this day’s distraction: (1) “the road to hell was paved with good intentions;” and (2) since I am from South Carolina, I will, for the sake of civil discourse on the subject, stand in the “Don’t Tread on Me,” category with respect to this federal legislation, for the time being.

Most people seeing or hearing, “naked license,” for the first time will wonder what does nudity have to do with intellectual property or business? Well, the concept that this term / phrase denotes is likely one of the most basic in IP, and it is limited to trademarks?

A quick Google search for “naked” and images shows that Americans are fascinated with the term, naked. For example, have you ever really considered …

or ??

The latter involves hooks and line and is dangerous enough fully clothed.

So what in the heck is a “naked license”?

A naked license occurs when a trademark or servicemark owner fails to police their brand. Yes, it is that simple. The license is bare. A naked license can arise when a trademark owner grants a written, de facto or verbal license to another party with no provisions allowing / requiring the trademark owner to ensure the quality of the goods sold or services rendered.

A naked license can also occur, arguably, when there are unenforced quality control provisions in place, or when a trademark owner benefits by the third-party use and acquiesces without any controls. The famed treatise, McCarthy on Trademarks, describes the naked licensing (paraphrased to shorten, italics emphasis added) as follows:

Uncontrolled licensing whereby licensee places the mark on any quality of goods [causing] mark to lose significance. Such uncontrolled licensee use raises a grave danger the public will be deceived.

While the concept prohibiting uncontrolled licensing is rooted in the Lanham Act at 15 U.S.C. 1055, circa 1946, the term naked license appears to have first been used in caselaw in 1959 in the Dawn Donut case, which is better known for its holding limiting trademark injunctions. In Dawn, the Second Circuit cited to a 1948 legal battle between chemical powerhouses DuPont and Celanese, and stated:

But even in the DuPont case the court was careful to point out that naked licensing, viz. the grant of licenses without the retention of control, was invalid. (bold emphasis added).

For those still curious, the issue of abandonment by naked licensing was remanded to the district court. The Dawn Donut court stated, “I would direct the district court to order the cancellation of plaintiff’s registrations if it should find that the plaintiff did not adequately police the operations of its licensees.”

Quality Control (“QC”) and Brand Power

A trademark owner must exercise Quality Control over its own services and those of its licensees. Why? Well, for example, to ensure their customers that a Ramada Inn in Butte, Montana maintains the same standards or service, cleanliness, etc., as another Ramada in Spokane, Raleigh, Savannah, Lubbock, Memphis or Santa Fe. Ok, so maybe expectations are not so high for a Ramada anymore. So change the example …

What if you have a reservation for the weekend at a Westin, Hilton or a Four Seasons? In the dining world for traveling workers, consider an Applebee’s restaurant. Ok, another brand arguably on the decline, maybe an Outback Steakhouse, or a Bonefish Grill? If you are a weary Interstate traveler … Cracker Barrel? You get the picture. You expect them all to be pretty similar to each other, and the Lanham Act says you have a right to that expectation.

For a recent S.C. District Court case on naked licensing, The Trademark Blog reports on Goliath Nike’s recent fueling the fire with allegations of a naked license by FUEL for apparel (by David) via use of co-existence agreements with other FUEL mark users. The district court’s order rejecting Nike’s naked licensing claim and discussing reverse dilution, a topic for another day, is available here.

As a consumer, when out of town, do you not gravitate to brands that you know, absent a strong recommendation to dine or stay somewhere else? Be honest, you know you do, unless you just have a thing for food poisoning. That is an example of the power of a brand. The policy behind the required QC helps consumers minimize their risks of a bad experience, and avoids deception of the public.

FaceBook Support Groups?

So what does this have to do with FaceBook support groups? Think for a moment, use your imagination, it is not really a hard question. Better yet, let’s look at the example that prompted my investigation recently.

Whole30® is a New York Times bestselling book seeking a trademark registration in Class 16 in the field of diet and nutrition. Whole30 also owns a registered servicemark in Class 44 for dietary and nutritional guidance; [and] providing a website featuring information about health, wellness and nutrition. The brand manifests itself for me initially by word of mouth (my lovely wife), then as the book (that I bought for her). However, as noted above, it also includes a web-site, and its enthusiastic readers then start their own FaceBook Support Groups (we will not even get into The Twitter handles).

You mean to tell me that Whole30® is responsible for how its customers spread the word about their program? Well, the best way to answer that is to refer you to to the Whole30 FaceBook Support Group “Guide” page. So what does Whole30® require of its readers / support group promoters:

use a name that “distinguishes” your group from “official” Whole30® sites; and

…

That’s pretty much it, the rest of their guidelines are just to “help you help them.” Below is their warning / trademark statement from the Guide page:

Tip: Please respect our registered trademark, and make sure your group name clearly identifies you as an independently-run community. Group names like “Whole30 Ireland” or “Whole30 Support” make it seem like you are a group run by Whole30 HQ, and creates confusion in the marketplace. We will ask you to change your group name if we find there is such confusion.

Take Aways

If you have a brand that is subject to being hi-jacked by your well-meaning supporters, and possibly watered-down by them despite their good intentions, you’d likely do well to copy some of these guidelines from Whole30®, very politely enforce them, and keep a record of it. Probably not a bad idea to encourage the support groups to link back to your official page either ;-).

If you are an enthusiastic supporter of a brand and if you run afoul of their guidelines, you may find yourself saying, “sorry, dude,” when they send you a cease-and-desist requiring you to not-so-much change, but “distinguish” your name. Pizza, btw, is not only not allowed in Mr. Hand’s class, but it is also not allowed on Whole30®, but you could pick the sausage off of Spicoli’s pizza, if the label says it has was grass-fed, has no sugar, etc. (p. 68). Actually the grass-fed comment is not a Whole30® requirement, but it is a good / bad / innocent example of how a support group or Twitter user could change the brand’s true message.

By the Way, btw …

The Whole30® book bought for my wife is now in good use (by me and our daughter). After being pretty overwhelmed by all of the information at first, my daughter and I give it two-thumbs up. She not only now will eat what I cook, she is cooking, planning, learning and having fun with me, which is pretty darn awesome.

We should all have a sincere interest in encouraging and assisting startup businesses, particularly those in our local areas. Startup owners are excited, creative, and many times provide useful services, products, and eventually (hopefully) create new jobs. All too often, however, by the time we speak with a startup about Intellectual Property opportunities, they have already picked a product or a business name or brand that is not registrable on the Principal Register as a trademark or servicemark because it is descriptive.

Accept This as Fact … 😉

For purposes of this blog post, take my word for it that the benefits of federal trademark registration are considerable. Ok, if you do not want to take my word for it, read here, here and here. Now that you are convinced beyond-any-reasonable-doubt that trademark registration (federal or state) is worthy of consideration for your startup or existing business, let’s look at the the four most likely landing spots (excluding generic) on the Trademark Spectrum of 5 categories for the name or brand you may be considering.

The “Trademark Spectrum”

Below are the five categories of trademarks as identified by the U.S. Patent and Trademark Office (“PTO”):

Generic – e.g., Kleenex, Coke, BUNDT for cakes, but maybe not yet for Google or XEROX in U.S., or XEROX (overseas). Here is a list of 41 alleged generic terms to help you better understand this category. There is likely legitimate disagreement as to whether or not all 41 of these are generic. Also, as noted above, it is unlikely that a new mark will be generic.

Suggestive – this is generally considered to be the best type of trademark to select – e.g., SPEEDI BAKE for “frozen dough,” or NOBURST for “antifreeze,” or see here for a discussion about suggestive marks.

Fanciful – e.g., XEROX or PEPSI before they became synonymous with the products they identified and, arguably, started becoming “generic” via genericide.

Arbitrary – e.g., XYZ Plumbing. The PTO defines an arbitrary mark as “a known word used in an unexpected or uncommon way.”

Click here for another blogger’s perspective on the five trademark categories.

Goods and Services

The goods and services associated with the mark are what make a mark descriptive. For example, Bass is not descriptive for an English Ale, e.g.,

but it could be for a fishing related product, such as a BIG MOUTH BILLY BASS. On a historical note, The Trademark Blog reports that the Bass mark for English Ale has been in use since the 1600’s and was the first ever registered mark in England. The triangle-and-script logo above is an example of a stylized / design mark, actually a composite of sorts since it also includes the word mark, BASS, referred to as the Literal Element on the PTO application.

So What Should You Do (or not do) in Deciding Upon a Name

This list below of four suggestions is by no means exhaustive, but should be good to get you started:

ONE: At a minimum, do a search for the name you are considering. Use Google, Bing or Yahoo, or all three. Also search the TESS database at the PTO.

Don’t pick a name without doing some form of a search, the more comprehensive, the better. You may regret not searching and it may be very costly, even fatal to your startup or business.

TWO: Spend time trying to come up with a catchy / suggestive name if you can. Talk to friends, see what similar businesses have done. Also seriously consider engaging an advertising or marketing firm to help you in selecting a name and / or logo for your business. This logo is something you should hope to use for the life of your business.

Don’t ignore (or continue to ignore) the benefits of trademark or servicemark registration. It is difficult to imagine a company or business that would not benefit in some way by employing an informed trademark portfolio development strategy.

FOUR: Once you think you have educated yourself on these issues, talk to an experienced trademark attorney about your options. If the startup has limited funds, you will want to know which trademark / servicemark filings need to be prioritized and be ready to budget for same in your search for capital. For some business models, the trademark is possibly the most valuable asset from the outset, and should not be overlooked.

Similarly, if you insist or cannot escape your commitment to a descriptive name, getting it on the Supplemental Register sooner is better than later and will start the clock running on the five-year secondary meaning presumption to move the mark to the Principal Register.

Trademark law can be very complex and is usually (almost always) filled with irony. For example, consider an excessively eager party with an unregistered trademark / brand that sends a nasty cease-and-desist to another party only to discover the recipient of the nastygram is the senior user of the mark! Then the supposed senior user learns in discovery that their mark was not used for 2 or 3 years and may now be considered abandoned, making the sender the senior user?

Don’t Overlook Trademark / Servicemark OPPORTUNITIES

Amongst the primary Intellectual Property fields of patents, copyrights, and trade secrets, trademarks are often overlooked as simply the name for a business. Overlooking this opportunity to brand your business or product is often costly in terms of value when it comes time to sell the business, or in lost resources when time must be spent responding to infringement allegations.

Whether your business is a startup or has been around for generations, you want to be able to avoid or overcome problems related to use of a descriptive name. If possible, doing that from the outset is likely best. In any event, don’t let becoming informed about your trademark options be a missed opportunity for your startup.

If this title, FaceBook Defamation caught your attention, chances are you already use FaceBook, Twitter, LinkedIn, Instagram, SnapChat or other social media platforms. Consider this, FaceBook alone claims as many as 968 million average daily users, and over a billion users on busy days. Yes, that is average daily FaceBook use equal to three times the 2014 U.S population of 318.9 million. How do you “like” that?

According to EbizMA, Twitter is second in users with over 300 million users, followed by LinkedIn, Pinterest, Google+, Tumblr and fast growing Instagram. You (or your business) could be defamed today by someone in a remote Asian village, or by an domestic online avatar. More likely, one of your so-called FaceBook friends will defame you. Online defamation also occurs in obituaries, comments to news / sports articles, Yelp reviews of your business, the RipOff Report, or anywhere on the Internet.

Let’s look at how defamation on FaceBook happens and on other social media platforms.

You may also ask the search engines (e.g., Google, Yahoo, and Bing) to De-Index the URL.

Assuming a court finds that follow up comments are defamatory and violate that court’s order, you could presumably have the speaker / writer placed in jail for contempt of court. However, ask yourself, when was the last time you read a story where this occurred in the U.S.? Likely “never!” The Seventh Circuit recently addressed the libel injunction issue to provide some clarity. As noted in the article by Professor Volokh in the preceding sentence, as was noted here before, the context of a defamation, particularly if per quod instead of per se, is difficult to address in a forward-looking rule that is necessarily “narrowly tailored.”

The Biggest Problem with most social media defamers

They have no accessible assets. Damnit you say. What about that big house in the gated neighborhood? mortgaged. Lakehouse? also mortgaged. Mercedez-Benz S-Class? leased. 401(k)? untouchable! Damnit you say again! Judgment proof? Practically, Yes, the average Joe or Jane has little to nothing to lose. When was the last time you “negotiated” with a 3-year old over a popsicle on hot summer day? As Churchill stated, “never engage in a battle of wits with an unarmed man.”

For this reason, the typical ‘Merican notion: “we’ll sue them into the next century, take every dime, then go after Grandma,” is ill-fated. No sensible attorney will take a defamation case on a contingency if the defendant is insolvent. So those with financial resources have an advantage, because they can afford competent counsel and pay hourly to pursue a case to judgment, or otherwise into oblivion.

If sued, an asset-free defendant may be wise to take a default judgment, confess to judgment on better terms, or even worse, they may answer and defend pro se. When was the last time you prepared for and travelled to a deposition only to discover the defendant / witness does not show up? At least you got to know the court reporter a little better.

Can I get some concrete options, please? Sure, Here are Seven (7) …

1. Do Nothing: Yes, that is right. We tend to think first about how everything affects us. Often what seems a mountain today is a mole-hill next week. Engaging in a dispute over these matters is will require a tremendous amount of emotional energy, time, money and more. Ask yourself:

(i) Does your son, daughter, or elderly parents need you?

(ii) Is there any fruit on the tree, or mostly just more despair and distractions?

(iii) How else can I come to terms with this?

2. Call and Speak to the Person: Many people cringe at this, however, if the defamation to an individual, much useful information can be obtained from a telephone call. This is information you might not ever from a an impersonal or threatening email or a letter. The whole affair could be a misunderstanding, which is likely if the statements are from a friend / former friend. The call may resolve the dispute and you have your friendship back, even better than before.

3. “Mediate” the Matter with a Mutual Friend / Respected Colleague / Minister / Counselor / Trained Neutral, etc.: This option is similar to #2 above, except you will be using the power of a mutually respected “mediator” to help you both resolve the dispute, misunderstanding, etc. The mediator must be able to help, not hurt the situation, and a professionally licensed and trained mediator, with clear ground rules is recommended. Face-to-face contact is not required, but reconciliation and apologies probably should be mediation goals.

4. Send a Cease-and-Desist Letter: As discussed above, this may just serve to kick the sleeping tiger who was growing tired of defaming you and cause them to go on yet another passionate tirade against you. This can be a very good option for a business defamation, or if the potential defendants have assets or possibly insurance to cover the defense of actions in question. many defamation actions will involve intentional conduct of the defendant and, therefore, will not (in theory) be subject to defense or indemnity by insurance.

5. File a Lawsuit: This may get the attention of the defamer, however, again, if they have no assets, they have nothing to lose and could simply take a default judgment, or worse, answer and defend the case pro se. Any injunction you may obtain will likely be too late and too narrow. If the defamation is to your business, the identity of the defendant (Jane Doe) may take months to discover, and could require legal action / subpoenas in multiple states.

6. Utilize Platform Policies to Request a Take Down of Offensive Comments: Sounds promising, however, platforms are only “required” to act on infringement of registered trademarks or copyrights. Defamatory comments, on the other hand, will only be taken down according to platform policy. Policing for defamation generates no $ and no liability (see CDA below), so it is not done. To get offensive comments taken down by FaceBook, Twitter, LinkedIn, Pinterest, etc., you need to show a defamation per se, false statements and respectfully ask for take down per their terms of service.

7. “Ask” the Search Engines to “DeIndex” the Offensive URL: This option was formerly the subject of published Google procedures, but now is left to their discretion, much like social media policies referenced above and discussed further below. The search engine may remove very specific URL’s adjudged by a court to be violations of law. Once a judgment is obtained (perhaps by default, confession, etc.), providing it and ask in as narrow a fashion as possible for DeIndexing the URL’s.

The URL’s may still be there on the “www” but if not reported in the search engine results, good luck finding them.

Social Media Terms of Service / User Agreements

The social media User Agreements / Terms of Service will limit liability contractually for content posted by third-parties, and will also reserve rights to take down material in violation of the User Agreements and / or Professional Community Guidelines (LinkedIn). As the cases show, even though the Communications Decency Act of 1996 (“CDA”) grant of “immunity from suit” is broad and almost bullet-proof, lawsuits continue attempting to expand upon / create further exceptions.

Twitter, LinkedIn and Pinterest terms of usage all specifically mention “defamation” or “defamatory” comments, however FaceBook does not. Instead, FaceBook’s Terms of Service provides more generally as follows:

You will not post content or take any action on Facebook that infringes or violates someone else’s rights or otherwise violates the law.

We can remove any content or information you post on Facebook if we believe that it violates this Statement or our policies.

As you can see, FaceBook maintains discretion to remove content that violates their policies, so you may get a remedy by convincing them that the statements about you violate the law or the rights of others and should be removed.

It is almost impossible to sue the social media platform for damages relating to any defamatory or otherwise false information posted by a third-party. This is due to immunity from suit (not just damages) provided to the online service providers by the CDA. While this may seem frustrating and create unjust results in certain circumstances, arguably, this immunity was necessary to create the free exchange of information on the Internet and its growth since 1996.

You don’t have to “like” it

The above list of options is not exclusive, and we would always suggest you consider any reasonable way to resolve your disputes without the need for utilizing options 4-7 above. Thinking creatively to resolve difficult disputes is what lawyers do, and you can too, even though you may not “like” it.

If the matter is still troubling you after careful consideration and consultation with trusted friends and relatives, causing loss of business or reputation, you may want to speak to a lawyer to explore the above options, or others. When the defamation is to your business online and can be viewed by potential clients or customers, your special damages could be accumulating so fast that you can’t afford not to take action.

If you believe you have been the victim of a defamation on FaceBook or otherwise, call our firm for a free initial consultation at 864-527-5906.

This post addresses a unique aspect of defamation law, specifically how a plaintiff whose character or reputation has been defamed can recover damages without proof of actual damage to his or her reputation.

As a father of three sons, I always got tickled by the Hyundai Sonata commercial depicted above, although I’d bet my former next door neighbors appreciate it even more than me. You may recall the very patient neighbor finally suggests to the inquisitive little boy, “Why don’t you go ask YOUR Dad? (click link for commercial). Humans have an instinctual need to understand things, particularly things that seem counter-intuitive or are exceptions to general rules. As lawyers, this instinct is heightened to say the least.

Defamation, Two Types: Libel or Slander:

As stated by the Court of Appeals in Parrish v. Allison, the difference between libel and slander can be described as follows:

Defamatory communications take two forms: libel and slander. Libel is the publication of defamatory material by written or printed words, by its embodiment in physical form or by any other form of communication that has the potentially harmful qualities characteristic of written or printed word. Slander is a spoken defamation. (Parrish v Allison from 2007 is reported here).

It should also be noted that the various state laws or rules may be applied differently for slander (spoken words that damage) and libel (written words that cause damage to reputation). Generally speaking, because the written words are with us longer, the law provides greater protection for victims of libel.

Defamation Per Se /or/ Per Quod – What is the Difference?

The distinction is that the defamation per se is defamatory standing alone. For example, the newspaper falsely reports, “Dr. Jim Jones got sued over a dozen times and lost his medical license in Missouri before coming here to practice.” Whereas, a defamation per quod requires the reader or hearer to associate other evidence to the statement to make it defamatory. For example, a news article or a FaceBook / social media posts suggests that an orthopaedic doctor in Town X was reportedly intoxicated when he was called off the golf course last Saturday to perform an emergency surgery, but does not name the doctor. As it turns out, there are only two orthopaedists in small Town X, the other is a female in a wheelchair (who does not play golf), and the only golf course in town is a male only club.

Because the reader must associate other evidence, namely knowing that there are only two orthopaedists in Town X, etc., the reader then associates the male orthopaedic doctor with performing a medical operation while intoxicated, does not immediately discuss it with anyone, but in the future refuses for anyone in her family to see anyone in the local orthopaedic practice, instead leaving town for such services, and in the future repeats the story she heard numerous times in private when the subject of a broken arm or leg comes up in the community. Because the court may classify the story about the male intoxicated golfing orthopaedic doctor as a defamation per quod, to recover for defamation, he would have to, for example, find a witness to testify about how his reputation or character was diminished in the community because of that publication / FaceBook post.

Case Law Explaining the Difference Between Defamation Per Se and Per Quod:

In South Carolina, the law regarding a defamation per se and presumed damages is stated as follows:

Under the common law, “[l]ibel is actionable per se if it involves written or printedwords which tend to degrade a person, that is, to reduce his character or reputation in the estimation of his friends or acquaintances, or the public, or to disgrace him, or to render him odious, contemptible, or ridiculous. (Erickson v Jones Street from 2006 is reported here).

In contrast, South Carolina courts have described a defamation per quod as follows:

If the defamatory meaning is not clear unless the hearer knows the facts or circumstances not contained in the statement itself, then the statement is defamatory per quod. In cases involving defamation per quod, the plaintiff must introduce facts extrinsic to the statement itself in order to prove a defamatory meaning. (Parrish v Allison from 2007 is reported here).

Another way to describe it is like this, in a defamation per se, the plaintiff need only introduce the news article itself, in the defamation per quod, the plaintiff needs the witness / reader of the statement to explain why she knew the article was referring to that particular orthopaedic male doctor. This same witness could then testify that reading the statement damaged the character or reputation of the plaintiff male golfing orthopaedic doctor.

So What to Make of All this Latin Per Se / Per Quod Jargon?:

The role of the lawyer / advocate is to convince the jury and the court that the offending statement is defamation per se (if you represent the plaintiff), or defamation per quod (if you represent the defendant). If the defendant’s counsel fails to convince the jury that the statement is a defamation per quod, their next step is to attack the rebuttable presumption of damages, defend on grounds that the statement is truthful, or that an absolute or qualified privilege applies.

However, some of us must still ask, “why allow a plaintiff to recover without proof of actual damages?”

The Right to Make the Statement, the Right to Bring the Lawsuit:

If you live in the U.S., you have a right to defame another person, however, the law provides that they can bring an action against you for the defamatory statements and recover. The victim of the defamatory statements does not have to wait around until their reputation is completely ruined, and their business lost, to bring an action. This is in part because, as a general rule, they cannot seek an injunction to stop you from saying or writing things about you, and also supported by the fact that a plaintiff cannot always know, and may never know, who shunned him or her because of what they heard or said from another source.

Defamation Per Se Damages:

The damages recoverable may vary from state to state, or at least the way in which they are described may vary. Some states use the three categories: (i) nominal damages: (ii) actual damages; and (iii) punitive damages. If you are defamed, depending on the character of the comments and the ill will or motivation attributed to the speaker or writer, you may be able to recover nominal damages and punitive damages without evidence of actual harm to your reputation.

In South Carolina, the defamation damages categories are often described by the following three categories: (i) general damages, (ii) special damages and (iii) punitive damages. These general damages in South Carolina represent the presumed category of damages described above and include such things as “injury to reputation, mental suffering, hurt feelings, and other similar types of injuries which are incapable of definite monetary valuation.” Special damages under South Carolina law include “tangible losses or injury to the plaintiff’s property, business, occupation or profession, which are capable of being assessed and which result from injury to the plaintiff’s reputation.” Punitive damages are also recoverable in South Carolina if the plaintiff can show by clear-and-convincing evidence that the nature of the statement is necessary to warn others from committing similar offenses in the future.

Wrap Up:

This brief review of some of the principles in play when there is concern that a statement may be damaging to someone’s reputation, and therefore be actionable, illustrate the complexities that can be involved in a defamation lawsuit. Also, the statute of limitations in defamation cases can be as short as two years, not three years as in most other claims.

If you are involved in a dispute regarding allegations of defamation, either as a potential plaintiff whose character or reputation has been damaged or as a defendant, you should seek counsel that is experienced in handling these types of cases in the state in which the action will be brought, understands these distinctions, why they exist, and how to use them in your case.

This post started as a “5 Things You Need to Know about The Duty of Loyalty,” however, the many lessons to glean from the Western Blue Print case out of Missouri in 2012 covered below caused a title change. So here are 5 thoughts on the often neglected Duty of Loyalty, and reasons why it should not be ignored or abandoned:

1. What is the Duty of Loyalty? The Duty of Loyalty is defined in numerous ways in varying contexts:

Cornell University’s Legal Information Institute defines the Duty of Loyalty as follows: “The duty of loyalty stands for the principle that directors and officers of a corporation in making all decisions in their capacities as corporate fiduciaries, must act without personal economic conflict. The duty of loyalty can be breached either by making a self-interested transaction or taking a corporate opportunity.”

Black’s Law Dictionary defines the adjective “loyalty” as a “faithfulness or allegiance to a person, cause, duty, or government.”

Black’s Law [Free Online] Legal Dictionary defines the Duty of Loyalty as follows: “A legal requirement in certain systems where the BOARD OF DIRECTORS and executives must ensure that any action taken is done in good faith and with the best interests of shareholders in mind. A breach of duty of loyalty can lead to legal action by shareholders.”

The [Employee’s] Duty of Loyalty can negate a statutory right to wages, and some stout wage payment remedies, including trebled damages and attorneys’ fees. As stated in our supreme court’s favorite legal treatise at 14 S.C. Jurisprudence 32 (Labor Relations) (citations omitted):

“Wage Payment Act provisions requiring employer to pay wages due to terminated employees do not supplant employee’s common-law duties of loyalty and fidelity to employer; if employee breaches duty of loyalty to employer by soliciting employer’s customers for competing company while working for employer, forfeiture of employee’s wages is appropriate.”

For example, Judge Ralph King Anderson, Jr.’s South Carolina Requests to Charge provides a charge for Employment Contract – Breach of Duty of Loyalty jury as follows: “An employee is not entitled to any compensation for services performed during the period he engaged in activities constituting a breach of his duty of loyalty even though part of those services may have been properly performed.”

Other states, for example, Missouri, provide the following regarding the Employee’s Duty of Loyalty: “Every employee owes his or her employer a duty of loyalty.” Interestingly, the Missouri Supreme Court in Western Blue Print Co., LLC v. Roberts (quoted above) held that the employee(s) in question did not owe their employer a fiduciary duty, and the plaintiff there ABANDONED its Duty of Loyalty claim in favor of the theoretically broader Fiduciary Duty claim. The distinction drawn in casting off the Fiduciary Duty claim was the fact that the scheming employee, Myrna Roberts, was not an officer or a director in the company, and apparently the court was not apt to expand The Fiduciary Duty to all employees. Perhaps because they could affirm the result on the tortious interference claim. It appears that the ABANDONMENT of the Duty of Loyalty claim, in hindsight, may have been a mistake, but could also have been part of a trial strategy as it is commonly believed that the Duty of Loyalty is subsumed within The Fiduciary Duty. Still further, the practical differences between the facts required to prove a tortious interference with contract and a Breach of the Duty of Loyalty are, arguably, minimal in this circumstance given Myrna’s employment contract.

A similar interplay of legal duties is involved for attorneys representing insureds under a policy requiring the insurer to indemnify and defend the insured.

Any or all of the above aside, when a jury gets charged on the Duty of Loyalty, we believe their instincts will inform them as to what it means. However the duty may be defined or charged, expect that the factfinder will understand very well the concept as one that is not likely to be twisted by knaves. They will be thinking about their Labrador Retriever that licks their face every morning and sits by their side every night loving them, and barks to warn of any change in circumstances at the house.

2.In what context does the Duty of Loyalty most often arise? The great thing about writing a blogging piece and titling it as “The X Things You Need to Know,” is the blogger can offer themselves “softball” questions. But is this really a softball question? Does the duty arise most often in breaches by employees-to-their-employers or by fiduciaries-to-their-beneficiaries, as in the recently reported Tibble v. Edison Int’l case decided by the U.S. Supreme Court, a/k/a SCOTUS, or by Boards of Directors? Certainly the effects of the latter two breaches can be far reaching and impact many employees or shareholders.

3.How does the Duty of Loyalty interact with other legal duties? As noted in our previous “spectra” post, the Duty of Loyalty along with the Duty of Reasonable Care are generally considered to be embodied within The Fiduciary Duty. The Duty of Loyalty could also embody the same duties of confidentiality as provided for in a non-disclosure agreement. As noted above in the Western Blue Print case from Missouri, the Duty of Loyalty, in certain circumstances can be considered separate from The Fiduciary Duty. A key distinction worth noting is that an employee is often free to plan to compete with his or her employer if they chose to resign, however, by taking specific action to plan for competing with his employer while still employed there, they may well be subject to viable claims for breach of the Duty of Loyalty, trade secret theft, etc.

4. Who Can be Sued for Breach of Loyalty? In South Carolina, as provided in the 1972 case Lowndes Products v. Brower, our supreme court held that not just the disloyal employees, but also third-parties that knowingly aided-and-abetted the employees in their breach of loyalty were liable to the plaintiff, Lowndes Products. So the claim for breach of loyalty may not be limited only to the disloyal employees. Interestingly, in Lowndes, the supreme court affirmed the refusal of the trial court (and the master) of plaintiff’s claim for misappropriation of trade secrets because it found reasonable steps were not taken to protect the trade secrets, however, the court noted, “An employee has a duty of fidelity to his employer apart from the question whether he has an obligation to maintain the employer’s processes and system of operation in confidence.” It is not clear what the difference is, if any, between claims against the third-parties for: (i) aiding-and-abetting a breach of loyalty, and (ii) intentional interference with contract (employment contract).

5. How Does the Duty of Loyalty Arise in E.R.I.S.A. / 401(k) Litigation? In the above-referenced Tibble decision, the SCOTUS held that the 401(k) Plan fiduciaries owe the plan participants a Duty of Care in selecting and arranging for the plan’s administrative fees associated with purchasing the same shares from different channels (e.g., retail versus institutional shares). Specifically, the Court held the plan fiduciaries breached their legal duties to the plan participants by allowing retail funds to be available at a much higher per transaction cost to the plan participants, thus reducing the participants’ available investment funds. The court noted evidence in the record that it was customary to simply ask for a reduction in the institutional fee or for a waiver of the mandatory minimum transaction charges. Such a failure by the plan fiduciaries could fall under the category of a breach of the Duty of Care (i.e., not diligent in evaluating and selecting plan options), but could also, in certain circumstances, could constitute a breach of the Duty of Loyalty. For example, suppose that the party recommending the particular investment option had other arrangements with the party earning the higher sales commission? The Duty of Loyalty differs from the Duty of Care in that its adds the duty of disclosure (transparency) and also the duty to undertake to both avoid and disclose conflicts of interest.

Conclusions

Whether your analysis of the ever-present Duty of Loyalty arises in the context of: (i) employment relationships; (ii) publicly traded board-member-to-shareholder duties; (iii) as a member of an LLC or other closely held corporation; (iv) ERISA plan fiduciaries of defined contribution 401(k) plans; or (v) otherwise, knowledge of the duty, its breadth and nuances, and situations in which it has been consistently applied by the courts can be critical to the success (or failure) of your cases.

And remember, don’t ABANDON this duty in your individual obligations, or when you get your case to the jury. In the 1972 Lowndes Products case referenced above the Duty of Loyalty was used to save what was considered a trade secret misappropriation case. In the Western Blue Print case from 2012, the Court there allowed a tortious interference claim to save what was likely considered primarily a Breach of Loyalty case. These two cases illustrate very well why your pleadings should include all available options for relief (and defenses) for your clients.

We like to put things in order, right? It helps us understand the concepts and the analytical process further identifies distinguishing characteristics. In the legal world, however, complex concepts are more appropriately placed on a spectrum, rather than a list. Dictionary.com provides a non-physics definition of “spectrum” as follows: “a broad range of varied but related ideas or objects, the individual features of which tend to overlap so as to form a continuous series or sequence, e.g.,the spectrum of political beliefs.”

Key words: range, related and overlap. Today, we look at the following three related legal duties, each of which overlap, but are also unique and distinct:

1. Ordinary Care, e.g., as owed by a bank to its depositors and customers in the handling of their checking transactions (likely a result of privity of contract and statute);

2. Reasonable Care, most commonly found in auto accident cases (arises the moment you turn the key and engage a pedal), medical malpractice, and other so-called “negligence” cases;

3. The Fiduciary Duty, e.g., as owed by a Trustee to a beneficiary, a lawyer in a lawyer-client relationship, or a by a 401(k) plan fiduciary to the participating employees (limited generally to special relationships, but also created by statute, as in case of ERISA and 401(k) plans).

To begin to illustrate how these three duties are related and can overlap, we introduce a fourth: The duty of confidentiality is generally included within The Fiduciary Duty. This duty can also arise in conjunction with all three duties identified above by: (a) special relationship; (b) contract, for example as a non-disclosure agreement (NDA); (c) court order; or (d) statute, as in duty to protect personal information such as social security numbers, etc., to the extent that hackers do not already have all that.

How Do These Three Legal Duties Differ?

Ordinary Care is characterized by what is customaryin any given context. In other words, are you doing what others like you in your field are also presently doing? For example, just because average speed on a Detroit-to-Novi freeway is 96 mph, making such conduct “customary,” that speed is still likely a violation of applicable law. As such, the person driving 96 mph causing an accident violates her duty of Reasonable Care. Recall from the link above, Reasonable Care is defined as, “the level of care that someone of ordinary prudence would have exercised under the same circumstances.” Note that establishing evidence of the Ordinary Care standard will likely require “expert” testimony. For example (back to banking), what if the expert witness testifies that Bank of America is doing something to protect your accounts that Wells Fargo is not doing? Would Chase or JP Morgan then be held to the Ordinary Care standard set by BoA, or could that be an issue for the jury?

So how do we determine what is prudent (Reasonable Care) vs. what is customary (Ordinary Care)?

Assume a “hypothetical utopian” community has 100% of its citizens acting with the utmost level of care, liability under a Reasonable Care standard is still evaluated by what would a reasonable person have done, not as compared to the hyper-vigilant utopians. In contrast, if a “hypothetical” community of reckless people is used to establish Ordinary Care, then the level of care owed under an Ordinary Care could be far less than that of Reasonable Care.

So how does The Fiduciary Duty differ from Reasonable Care and Ordinary Care?

So does this mean that the person owing The Fiduciary Duty, if a reckless person in their own right, then only owes the client the same recklessness for which they would apply to their own affairs? Certainly not. In fact, one of the primary differences between a Reasonable Care Duty and The Fiduciary Duty is that The Fiduciary Duty is owed to a specified individual or group of people, whereas, the duty of Reasonable Care is generally owed to all persons in any particular context, e.g., all persons driving or riding on the road in which you drive your vehicle.

Can the conduct of the client or beneficiary of the duty owed negate or reduce the duty owed?

Yes. For example, in banking law, frequently referred to as the UCC, the bank owes a duty of Ordinary Care unless the customer has failed, ironically, to exercise Reasonable Care by inspecting returned checks for forgeries, or for forgeries by the “same wrongdoer.” Similarly, in a common law negligence case where the duty of Reasonable Care is owed, if the plaintiff is negligent or “comparatively negligent,” then he or she may also lose the benefit of the legal duty owed as the cause of the injury is attributed to their own actions.

The Fiduciary Duty necessarily implies that the party owing this duty must act in the best interests of the beneficiary (loyalty), and no such legal concept like comparative fault can be used to mitigate or eliminate The Fiduciary Duty owed. This is true of lawyers and their clients, of a Trustee for children who have lost their parents and have trust funds to care for them left behind, and also recently covered when a party takes on the “fiduciary” responsibility to ensure that a company’s 401(k) plan is managed in a way that is in the best interests of the employees and not to provide for unnecessary fees or unnecessarily excessive management charges over and above what would have been customarily available.

What to do if you think you have a claim for breach of a legal duty owed?

In September of 2012, our family had plans to host several families at our house to watch the Clemson v. Florida State football game being played in Tallahassee. My wife loves people and entertaining. To create a fun, festive, and pleasant environment for the game, she and the children, while running errands that Saturday, decided to purchase a small fishbowl. Included in this “small” fishbowl were three Orandas. An Oranda, as shown above, is a bright “orange” and white fish from the goldfish family, pretty hearty but they do require a decent amount of space, oxygen, etc. (more than provided in a 2.5 gallon fishbowl). Continue reading “Fish Tank Trade Secrets”→

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Our aim is entertain and educate our readers regarding on the types of legal cases our firm typically handles, including all types of business disputes, defamation, civil rights / excessive force, and intellectual property. We prefer to focus on how facts relate to jury trials, with the intent of adding value to your visit. We sincerely hope you will enjoy the blog and look forward to your comments or other input. See also link to Twitter … @WesFewSC

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About Wes Few

Wes comes from a family of accomplished lawyers. He has over 19 years experience in law practice and as a district court law clerk. Wes’s focus is client service and results. Wes enjoys practicing law, and he treats his client’s cases like they were his own. If you have any questions on legal issues in South Carolina, Wes is committed to make sure you get the right legal advice you need, and would be delighted to speak to you and accept your case, or direct you to the right lawyer for your needs.